Finance and Accounting

How is technology influencing various types of taxation processes?

Digitalisation is the buzzword ever since the pandemic hit the world in 2019. In the wake of the pandemic, many organisations that were sceptical about the adoption of technology had no option but to digitalise* their systems and processes.

Technologies such as cloud computing, Robotic Process Automation (RPA), Artificial Intelligence (AI), Machine Learning (ML), and more are being extensively deployed to streamline functions such as supply chain management, payroll, invoice processing, and others. Just like other functions in an organisation, the taxation function also needs technological intervention to address multiple inherent complexities. A typical tax record-to-report cycle involves the following elements:

  1. Compliance
  2. Cash management
  3. Estimates and extensions.
  4. Provisions
  5. Controversy management
  6. Tax planning

Legacy tax management systems use spreadsheets, and the data is moved manually. This makes the process prone to human errors and compliance risks.

Challenges Faced by Tax Professionals

  1. The corporate tax function in an organisation is affected by updates in tax laws and accounting standards. In addition, the tax function is deeply impacted by core processes and routine functions. Tax professionals need to track and manage the receipt, processing, and retention of data and relevant documents.
  2. Global tax requirements are becoming more complex as human resources are geographically dispersed.
  3. Tax professionals need to collaborate with external and internal stakeholders to share data, track responses, and ensure compliance.
  4. The tax function requires accurate data to be stored and made available for routine audits, compliance, and other purposes.
  5. Extensive data processing is required so that data can be mined, searched, and consolidated.
  6. The tax function requires the assimilation of data from disparate sources for routine compliance and reporting.
  7. Taxation needs to be capable of operating efficiently with proper controls in place.
  8. Taxpayers also need to respond quickly to changing compliance and reporting demands.

Emerging technologies come as a respite to tax professionals by offering tools to streamline the taxation process.

Benefits in taxation by using technology

  1. The organisation’s operational efficiency is enhanced.
  2. Different tax processes are standardised.
  3. Facilitation of consistent execution across tax periods.
  4. The availability of data on mobiles and remote devices enables tax professionals to access information on the move.
  5. RPA automates several routine processes such as tax deduction from gross pay, compliance, etc. Automation eliminates human errors and enhances the speed of the process.
  6. The tax function requires large volumes of data to be gathered, interpreted, and analysed. AI performs these functions efficiently and provides valuable insights to tax professionals.
  7. Technology streamlines data management making it easy to access and use data.
  8. Tax professionals can access analytics and reports that help measure performance metrics such as cycle time, cash taxes paid, and more.
  9. Cloud computing facilitates seamless collaboration between stakeholders by providing better outcomes.
  10. Automation frees up tax professionals from mundane tasks enabling them to work on other critical aspects of taxation.

If the tax department in an organisation is contemplating the adoption of technology, it must consider the following factors before investing.

The adoption of technology for taxation is not a standalone aspect of a business. Tax is an interdisciplinary function that involves departments such as treasury, legal, finance, operations, etc. Therefore, the adoption of technology for taxation will be impacted by the extent of technological intervention in other departments. The tools and technologies adopted must align with those adopted by other departments.

The tax department will need to identify what processes can be upgraded with technology. For instance, RPA can be used to automate routine processes. The right type of technologies must be selected to enhance the efficiency of different tax processes. For example, AI-based software can be used for answering taxation queries from documents or to discover tax frauds.

The adoption of technology will impact the organisational structure and the skill sets of tax professionals. The organisation will need tax professionals who can collaborate with technology for better outcomes. Investment in technology has huge cost implications. Therefore, it is a good idea to conduct a cost-benefit analysis before investing.

In Conclusion

In the digital era, technology has a vital role to play in streamlining different functions in an organisation. Taxation is a complex function as it involves an interplay of various factors. It is impacted not only by the internal functioning of the organisation but also by the external changes in tax laws and updates. Manual systems are tedious and prone to errors. Technological intervention can eliminate these errors and speed up the process. Besides, technology can make the taxation function agile* so that it responds quickly to changes in the internal or external environment of an organisation.

*For organizations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organizational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organizations that are innovating collaboratively for the future.

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